Detroit’s $9 Billion Black Hole is Going to Get You

As you know, here at Dent Research, we believe you can only achieve true financial success if you eschew the B.S. spewed by mainstream media … if you have all the facts at hand to make truly educated decisions… if you think smart and outside the box, like a contrarian.

That’s why you’re now getting this Saturday edition.

At the end of each week, I’ll bring you details and key pieces of information you might have missed during the week. You’ll get more opinions and more of our economic and investment views so you’re better armed to, well, survive and prosper through booms and busts. Your Saturday edition will also bring more regular peeks behind the Dent Research curtains, which is something we’ve not done much before.

Let’s talk about the black hole in the room.Detroit is flat broke. Since 2008 the city has spent $100 million per year more than it brings in, borrowing the difference. But this excess is chump change compared to the real black hole: cost. The city currently has $11 billion in unsecured debt, which is an ironic way to characterize general obligation bonds backed by the full faith and credit of the taxing authority, the city itself. Historically, investors prized such bonds because the city could raise taxes as much as necessary to repay the debt. Recently people have realized there’s a limit to such taxation, particularly when citizens and companies are heading for the exits. But back to the big problem…

Of the city’s $11 billion in unsecured debt, $6 billion is for retiree health benefits and $3 billion is for pensions. These obligations have continued to grow over decades, even though every comptroller, treasurer, and auditor who reviewed the city’s books during that time either knew, or should have known, the debts were growing at an unpayable rate. Now thousands of retirees, current and future, are being asked to “sacrifice” for the city. The cost of this sacrifice? 90%.

NINETY!

Kevyn Orr, the city’s emergency manager, suggest unsecured lenders, like the retirees, get 10 cents on the dollar of what they are owed. As horrific as that is, worse still is we, American taxpayers, will make up the difference. Even crazier is the fact that, despite this kind of news, the market continues its move up. Yet when good economic news surfaces, investors storm the exits. This is proof positive we live and invest in a world turned upside down.

The situation in Detroit comes as no surprise to Harry and Rodney. For years, they’ve talked about how entitlements, like pensions, Medicare, Medicaid, and Social Security are destructive obligations cities and government will ultimately be unable to meet. In fact, in 2010, they published a report (under the old HS Dent company), in which they forecast the collapse we see happening today. That’s how powerful their research is.

Remember, back in May, when the U.S. Central Bank… announced, “Maybe the economy is doing better and we don’t have to print almost a $100 billion a month”? That should have been good news, right? Yet the markets sold off. Equities went down. Interest rates went up. Gold went down. So the Fed came out to say, “Actually, the economy is still kinda bad, so we’re really going to keep printing for now.” And everything went up. It’s utterly irrational, which is why you should book your flight to California this November 6 to 8. Traditional ideas about investing are no longer as reliable as they were a decade ago. We know the reason for this whole mess. Rodney explains it in this three minute video. Listen now.

Did You Grab That $5,500 in 11 days? You just had to follow Adam’s instructions in the June 17 issue of Survive & Prosper and you’d be smiling all the way to the bank. For those who missed it, a little over a month ago, Adam alerted readers to an opportunity in the Japanese yen. He said to get in at ¥94.50, place a stop-loss order at ¥92.50, and take profits at ¥100. If you acted on his recommendation, well done. If you didn’t, not all is lost. While Adam’s had Boom & Bust subscribers playing the yen trend since 2012, and they’re up 55% on that trade so far, he has a new recommendation. In fact, it’s so new he only sent it out to subscribers yesterday. It’s an opportunity that takes advantage of one of the greatest American developments… something that took the man responsible 17 years to perfect. I doubt there’ll be much time to make this play because it’s that powerful, so I urge you to read the latest Boom & Bust issue now.

Do you know the nine reasons why emerging markets could trigger the next great crash? As Harry said in your Tuesday issue of Survive & Prosper, most analysts love to tout emerging market stocks and Exchange Traded Funds (ETFs) because it’s the global economy’s highest growth sector. Harry doesn’t dispute that, over the long-term. Absolutely, emerging markets will contribute the most growth in the next global boom. How could they not? They don’t face the consequences of aging populations or shrinking workforces like we do. But, as far as Harry’s concerned, emerging markets have a big problem in the short term. If you missed his article earlier in the week, read it now.

You Asked, We Answered… Speaking of the crash, a paid-up Boom & Bust subscriber, Deborah, recently emailed us with the following question: “I understand your domestic arguments based (in part) on the demographics of the U.S. and the Fed’s behavior. However, in every down market I have seen a ‘flight to quality.’ In these turbulent times, is it possible that worldwide wealth will flee to U.S. securities (both corporate and government) for safety?”

While the question and answers platform is one of the many benefits of subscribing, risk-free mind you, to Boom & Bust, Rodney’s answer to Deborah could prove useful to you too. Here’s what he replied: “Deborah, we definitely see a flight to quality as markets turn south. That does not mean equities though. It is typically limited to U.S. Treasury bonds. As we’ve noted in other places, for most medium- to long-term interest rate plays, we see rates moving up. For Treasuries, rates could go up a bit, then come down as people look for a safe hiding place.”

One last point… as your insider here at Dent Research, I want to hear from you. Send me your questions. Send me your stories about how you’ve used the information we share with you to call out a liar or avoid a big loss or make a great financial decisions… even just send me a note to say hello. You can reach me at surviveandprosper1@gmail.com. I can’t promise that you’ll hear back from me immediately. Honestly, there may be times when you don’t hear back from me at all. But know that I appreciate every email you send. It helps us bring you better, more powerful information… and ultimately, that’s to your advantage.

Talk to you next Saturday. Until then,

Teresa

P.S. Harry’s burning the candle at both ends writing his latest book about the demographic cliffs developed countries are careening towards… what will happen to economies as each country tumbles our the edge… and what you must do to protect your wealth, business and investments before this happens. I’ve had a glimpse at the first few draft chapters and it’s fascinating stuff. You definitely want to keep this one on your radar. I’ll keep you posted as Harry gets closer to finishing.